Wednesday, May 25, 2011

Tenaga ... May11

Reported that following price hikes for petrol and sugar, the government is due to increase electricity tariff.

However, according to sources, no official announcement has been made by the
ministry to national power provider Tenaga Nasional Bhd (TNB) and that a hike could come sometime in June 2011.

According to Performance Management and Delivery Unit's (Pemandu) subsidy rationalisation plan, electricity tariffs will be increased by 2.4 sen/kWh initially, followed by 1.6 sen/kWh increase in every six months over the next five years until July 2014. Currently, the average electricity tariff stands at 31.3 sen/kWh.

TNB has had its base tariff hike (2% to 3% adjustment for every three years to account for inflation) frozen since 2009. Its current tariff (effectively at 31.2 sen per kWh) only covers the coal cost up to US$85 per tonne versus the current coal price estimates of US$117 per tonne.

TNB had clarified that the utility giant had no timeline indications from the Government for the tariff review, other than the fact that the Government wanted to push through the subsidy rationalisation plans as proposed by Pemandu.

Any tariff hike will fully compensate for subsidised gas price hikes, hence, a neutral impact on TNB.

Although the exact quantum of the hike is still not known, it is expected that the new tariff will take into account TNB’s coal price over the past two quarters. The hike could come in between 3% and 6%. There could be a small hike on the cards for TNB as it needed a 1% rise to cover the government’s renewable energy feed-in-tariff scheme.

For 2QFY10 ended Feb 28, Tenaga’s coal price averaged around US$100 (RM302) per tonne, which was similar to the price in 1Q. The current electricity tariff has coal prices pegged at US$85 per tonne.

It should be noted that although the bulk of the country’s power comes from gas rather than coal, due to the price of the former being fixed, it is the costs of the latter that have been weighing down on TNB. According to the annual report for FY10 ended Aug 31, TNB’s generation mix comprises 53.1% gas and 34.1% coal.

However, the curtailment by national oil company Petroliam Nasional Bhd (Petronas) has meant that the national power player is using a higher amount of coal that translates into higher operating expenses.
In comparison, for 2QFY10, Tenaga’s operating expenses came in at RM6.17 billion and in 2QFY11, operating expenses rose 14.9% to RM7.09 billion. 

It is still uncertain at this point whether the increase will come hand-in-hand with a rise in gas prices. However, the possibility that gas prices will also increase cannot be ruled out given Petronas’ open stance that gas prices should also be allowed to adjust in line with market prices.

The last adjustment was in March 2009, when the government had brought down the electricity tariff along with the price of gas following the plunge in oil price as a result of the global financial crisis. Since then, the government has committed to reviewing the electricity tariff every six months.

TNB has been lobbying for the tariff adjustment as higher coal prices continue to bite into the company’s bottom line.

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